tv Options Action CNBC January 5, 2018 5:30pm-6:00pm EST
we're live at the nasdaq market site. look who decided to stick around for the good old "oa," brian kelly himself. he even put on his fancy jacket. here's what's coming up in the show ♪ back in the saddle again >> that's what some traders are saying about bitcoin, which is surging again. and options traders see even bigger gains for some crypto related stocks we'll tell you how to profit plus -- talk about a bank job. >> this is a robbery >> financials have surged into
earnings if you're tempted to buy, you may want to wait until after they report. we'll explain. and a big event next week could send one of these stocks surging. we'll tell you which one and what it means for the biotech space. it's time to risk less and make more the action begins right now. let's get right to it, because the big banks officially kick off earnings season next week and the options market is implying some pretty big moves wells fargo and pnpnc could see big jolt in either direction traders see a 3% move in blackrock. financials are up 21%. how should you play these names for earnings let's get to the chart master, carter worth, already at the plasma and ready to go >> it's true, as a sector financials are pacing the market up a bit more. but what's interesting, it's so dependent on nails like american
express, big insurance companies like travelers if you look at the banks, the banks themselves have trailed the market and regional banks have really trailed. i don't like banks here. we're going to end up with jpmorgan here we have the bkx index is dominated by the big names, citi, jpmorgan, wells fargo and so forth by all accounts you would call this a nice up trend it is. but the question is is it delivering results, meaning opportunity costs, is it outperforming the market so what i would have you look at, then, is a little bit longer term and now here is that trend line. here is the -- again, new highs over the past two years. keep that on your retina, so to speak, and let's go on to some relative charts. now, we have a two-panel chart that same index over the past two years. and this is the important part again, since the election, up. relative performance, that's what matters you could have avoided this, or bought bitcoin, meaning choice
matters. underperforming. and i'm not sure i see anything that's going to change that. let's keep going so here is jjpmorgan the key here is, yes, making new highs. but look what's happening relative if i add a line right here, this is going to tell you exactly what i think the issue is. yes, it's gone up of late. but it's not participating with the general market and overall, it's made no real relative results in about two years. so as a pick, it really didn't do anything other than one of could have done just by being in the s.p.y. that's the issue i think what we have here is a stock that has checked back to trend, checked back to trend i think you have the risk that you check back to trend again on something perhaps unhappy in the earnings results i don't want to be overweight banks here and i don't think jpmorgan is any different than the group at large >> is there a differentiation,
carter, between the big banks and, say, the regional banks or mid- to smaller size banks >> they're worse if you look at the pre, that's only up 7% in the last 12 months, massive underperformance they are the most rate-sensitive part of the financial complex. that tells you something there small banks, and some of them are outright very poor what we know is online brokerage has been very strong again, insurance it's really about the stock picking, not about the aggregate of financials being a good group to be in >> all right so mike, what do you think of the banks right now and specifically carter had mentioned jpmorgan thoughts on jpmorgan >> let's start with jpmorgan jpmorgan is best of breed among the money center banks, obviously it's performed very well the fundamentals of the company remain relatively strong he was talking about the relative performance mattering another thing that matters is valuations and where we are at right now is above average valuations for many of these banks, including
jpmorgan, whether you're looking at price to earnings basis or price to book basis. somewhere between 7 and 15% above historical valuations for the name what's interesting, some of these names are implying fairly big moves, maybe even above average moves. that isn't actually true for jpmorgan we're looking at a 2.5% move there. while the bank itself is relatively expensive, the options on it are not. >> i think the way to play this, i was looking out to march, you could buy the 105, 100 put spreadsheet. you would spend 220 for that 105 strike put, less than a quarter of the distance between the strikes. we like that kind of math. we're trying to target that checkback that carter was talking about. >> bk, i don't know what you think of the trade, you can give us that opinion, but this really goes against a lot of what the fundamental strategists are saying on wall street, they all love the banks, it's regulation. >> it's the same thing they did a year ago, they loved them a year ago >> that's the question you have to ask yourself, is what has
changed in the market that are going to make the banks go higher now, might say that with some of the banks, that higher interest rates will help. they'll help that net interest margin but on the other side, when you're talking about the big banks like a jpmorgan, they have that capital market side when there's no volatility like we've had, that's a problem for their trading desks, they don't do as much business. we've seen relative flat performance in the banks because you have a push and pull between different sides of their business >> so you're with them >> listen, i wouldn't be long them into earnings i like the idea of putting a put spread on here, even just to protect a long position that you had. that being said, on a selloff i would probably be more excited >> last word >> it's those big things it's taxes, it's rates, it's the operating business itself and the environment these banks are in it's not at all a clear sign >> how about deregulation, though >> that too. >> that's going to be the big driver, right? less restrictions on capital >> the hope was those things were going to happen
are they going to happen they're not performing i mean, they're not producing the results that you should expect for the risk you embrace by owning them >> i like jpmorgan i just don't happen to like it terrifically at this price that put spread offers a decent way to make a bearish bet on it. bitcoin futures posting their best week ever the cboe and cme futures are up 13%. breaking it all down is a man who is too hot to handle, dom chu. >> reporter: well, forget about hot, melissa, how about roller coaster ride up and down. or hot and cold, whatever you want to call it. what we've seen in the midst of this price action is a rise in trading interest in the two futures contracts tied to the cryptocurrency the slightly more seasoned cboe bitcoin futures are trading around 4,000 contracts a day according to the cboe, the open
interest in bitcoin futures stands at around 2,830 contracts. those cboe futures are one bitcoin of exposure per one contract cme futures which are five bitcoin exposures per one future, the average daily volume there, 823 contracts now, the cme and cboe both up around 2% on the week as stocks themselves we've also seen a rise in some of the stocks of other so-called bitcoins, right, bitcoin companies. check out online retailer ov overstock.com, it's up 32% in the last five days payments processor square has been dabbling with bitcoin transactions, melissa, those shares up 17% in the timespan, bouncing back from a recent pullback look at those stocks, an interesting move in the ecosystem. >> thank you, dom, have a good weekend. come to which you in the newsroom bk, what do you make the
activity >> that to me is what's interesting here, when we first had those bitcoin futures come out, you could almost pick up 8% between the time they came out and selling the longer dated let's call it march future, you would get 8% that has come down significantly. part of the reason why, it was not a lot of brokers that were trading futures. institutions couldn't necessarily trade them in size now that you're getting expanding open interest, you're getting expanding volume, you're going to start to see that pick up you're going to start to see the spread between bitcoin and the futures compress a bit and that's all a good thing for the ecosystem. that means it's operating in a healthy way and it's operating in a way that it should like every other future market. >> in terms of what it's doing, it doesn't seem to be doing anything to volatility the thinking was that perhaps it would dampen some of the volatility in the underlying asset. we haven't really seen that. >> we haven't seen that so much yet. over time that's going to be one of those things, one or two years down the line we'll say,
you know what, volatility has slowly started to die down, as more institutions ramp up, and now you can have that selling pressure from short sellers in the futures, in they're long in the underlying but that's something that's going to take a bit of time. >> dom had mentioned bitcoin stocks like overstock and square, which is offering bitcoin sales through its cash app. what do we see in terms of options activity i would imagine that would be present active >> well, there's no question that both of those, and also the cboe and cme have seen significant increases in option activity since they made the announcement that they were going to be participating either as overstock has in accepting it or as cme and cboe has in lifting futures on this, which i think are a very good idea for the two exchanges, certainly one thing i would say is that a lot of very good news about it seems to be priced into these things already cboe, which is innovative amongst the exchanges, i like what they're doing, but it's not a cheap stock. 40 times earnings. i think cme is trading 30 times
earning. i like to see them moving in this direction it will be helpful for them in the long run but the stocks aren't cheap here >> what do you make of the action we're saying these are tethered to bitcoin in terms of bitcoin itself, it made quite a bounce off the close. >> didn't it, though that's the important thing a 44% decline seems like a great thing in and of itself, yet we've seen two 90% declines, three others that were 70%, several that were 35 and 40. yet each time, this is the end why does it have to be the end you would have never thought it was the end. >> no. there's a website that chronicles every time bitcoin has died over the last nine years, and it's a pretty long list i don't think this is the end. what you highlight with the volatility i think investors need to know this is an extremely volatile asset class. 1 to 5% of your risk assets you can put into this asset class. i would not take out a mortgage on your house to buy this. that's a bad idea. >> is there a warning in terms
of the technicals of it that this isn't the big decline we should be expecting this go-round in the rally in bitcoin? the other declines have been much deeper with very strong bouncebacks. >> there were some that were deeper there are several, eight, 12, 15, that are 30 to 40% it seems to me it's another one of those >> if you want to learn more about bitcoin futures, check out our sister show, "futures now" every tuesday and thursday live on cnbc.com. check out our website to sign up for our super cool newsletter. here's what's coming up next that's what biotech has done of late. and there's something to suggest the gains will continue next week we'll tell you what that is. plus -- calling all "options action" fans reach into your pocket, grab your phone, and tweet us your question @optionsaction.
if it's nice, we'll answer it on air, when "options action" returns. >> logical see that's funny, i thought you traded options. i'm not really a wall street guy. what's the hesitation? eh, it just feels too complicated, you know? well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade
there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade. the so-called olympics of health care taking place in san francisco next week. the group has rallied 3% meg terrell has three names to watch before the torch is lit. meg? >> reporter: that's right, mel it's the biggest health care investing event of the year, 9,000 attendees, and those are just the ones who can fit inside the building there's much more happening inside the conference.
what to watch? deals. monday morning is prime time for m&a announcements. we've seen in previous years deals announced like shire's acquisitions at multibillion dollar valuations. many are questioning whether there has been enough time to digest the tax overhaul for big companies to pull the trigger on m&a. the week will also bring q4 guidance three stocks to watch are celgene which kicks off the conference monday morning. that stock had a tough fourth quarter after the company revised its 2020 forecasts lower. celgene is something of a bellwether for all of biotech. many said that scare drove the more generalist investors out of the space. another one to watch next week will be shire. that company, the buyer in two of the biggest deals announced in previous years. the stock has been under pressure, down 14% in the last year
regeneron provides fourth quarter results. and we'll have ceo len schleifer on "fast money." >> thanks to much, meg terrell should you keep betting on biotech in the new year? carter is at the plasma to break it down. >> i like them he shou you should keep betting on them in the new year. since inception, idb, when you have dynamic, groundbreaking, life changing product, you can have dynamic, groundbreaking, life changing results. ibb has doubled the performance of the general equity markets since launch a lot of different companies as a theme, as a bet, as an aggregate it's a place you want to be long term. okay the issue is the underperformance of the past three years. having peaked some three years ago, what i have is that same long term trajectory on the bottom is relative performance to the s&p
what we know is that this has come down to this line and bounced and bounced and bounced and bounced and bounced. and we're right down there again. and it's my thinking that having underperformed, we're about to get outperformance, not only relative but absolute performance. okay let's draw some lines. here is the last five years. you could draw the lines this way. and it clearly came out of the wedge to the upside. move on. you could draw the lines this way, which to my eye would suggest more of that you could draw the lines this way. people like to look for head and shoulders but the implications is that. either way, the way is higher for this former winner that's underperformed let's go to the here and now this is the past 12 months here is our friend line. and i want to make the bet again that we're going to bounce off the line, bounce off the line,
and make a new high. i like ibb >> all right, looks convincing mike, what do you think? how are you trading biotech? >> i like this space there's a lot of names that are constituents of the ibb etf that unlike a lot of other stocks that we look at all the time are actually fundamentally looking pretty cheap that can create a floor in prices that's kind of what i'm betting on here. there are also not a lot of good opportunities in this volatility environment to collect premium this is one of them. i'm looking at february, these are options that expire a little over a month from now. i could sell those and collect $225 i'm collecting better than 1% a month. the downside would be if ibb does drop, i'll buy at that 109 stock price. of course i'll collect that premium so i'll own it a little bit lower. this is a way to collect some premium, potentially put ibb at a favorable level when there
aren't a lot of opportunities to do that now. >> what do you think, bk >> listen, i'm a guest here tonight. i hate to go get carter and khouw. >> but you're going against carter and khouw >> i would love to see a lot more volume on this rally up we haven't seen a ton of volume. the average volume has been a little bit lower on something like this, the way i tend to trade is i wait for a breakout on higher volume than trying to get it here. to me, it actually looks like at least at ibb we might be looking at a top the nasdaq etf, that one also looks like potential double top here i'm not as thrilled as carter and khouw, sorry >> it's all right. >> that's why we have you here, someone's got to take the other side i think the important thing is, remember, you'rebetting on an aggregate. it's 150 plus stocks five stocks are up 40% of the way, biie, celgene, gilead and so forth you are betting on the big ones. the issue is this. even as equities are going higher still, does this group
play catch-up? i would say yes. >> that's the bet. >> mike, final word? you want to respond to bk here >> i look at a name like celgene, that's the one thing that troubles me i probably would agree with him. that's why i'm looking at a broader basket of stocks that are doing a lot of it innovate thin ive things ibb might be one of the ways to do it. still ahead, energy stocks coming back from the dead, surging nearly 10% in just the past three months. mike's got one name he says could rally even higher. i'm give us the details. got a question for one of our traders? of course you do send us a tweet t to @optionsaction. see that's funny, i thought you traded options. i'm not really a wall street guy. what's the hesitation? eh, it just feels too complicated, you know? well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you
through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade duncan just protected his family with a $500,000 life insurance policy. how much do you think it cost him? $100 a month? $75? $50? actually, duncan got his $500,000 for under $28 a month. less than $1 a day! his secret? selectquote. in just minutes a selectquote agent will comparison shop nearly a dozen highly rated life insurance companies, and give you a choice of your five best rates. duncan's wife cassie got a $750,000 policy for under $21 per month. give your family the security it needs, at a price you can afford. since 1985, selectquote has saved over a million families
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well, it'sonce again.eason >>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade. welcome back to openin"optis action."
last month mike made a bet that halliburton was higher >> the oil services sector and halliburton in particular is an interesting play you cited the fact that these stocks have done well recently, overall for the year this sector is actually not trading at all time highs the trade i'm looking at is the january 42 40 put spread you can collect 50 cents >> since then halliburton shares are up 20% mike, what do you do now >> you know, so this is one of those cases where we put on a high probability trade when we sold that credit put spread and sometimes you would actually have preferred to have taken the low probability bet. i still like halliburton here, implied volatilities are low you can close that put spread and buy longer daily call options. >> agreed, schlumberger, halliburton, energy acts well. the stocks still are behind the commodity. >> what do you think, bk >> with the run in halliburton, it's a great place to buy some
upside calls here, take profit on your puts, you still have exposure to the upside of halliburton. up next, your tweets and the final calls from the options pits see that's funny, i thought you traded options. i'm not really a wall street guy. what's the hesitation? eh, it just feels too complicated, you know? well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade
well, it'sonce again.eason >>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade.
welcome back to "options action." time to take your tweets django asks, i'm new to this, i own 100 shares of bank of america, can you benefit from selling an options contract on this mike >> absolutely. sell the feb 32 calls, that's selling a covered call that's the best way for most people to begin trading options. >> next question from alex, he says, question for dan, gm held a 44 level pretty well, ready for a bullish breakout from the cup and handle pattern, is it better to buy it outright? nasty weather has dan stuck in jamaica, poor dan. carter will take the question. >> sure, you can be aggressive
and buy the options. either way it does look higher >> mike? >> covered calls are always the best way to get started as an options trader >> i want to get out of banks and into biotech >> thanks for having me and let me put a jacket on. buying opti >> thanks for joining us "mad money" starts right now ♪ my mission is simple -- to make you money i'm here to level the playing field for all investors. there's always a bull market somewhere and i promise to help you find it. "mad money" starts now hey, i'm cramer. welcome to "mad money. welcome to cramerica other people want to make friends. i'm just trying to save you money. my job isn't just to entertain but to educate and teach call me at 1-800-743-cnbc. or tweet me @jimcramer this is some kind of wild, wacky market we have going here. we have a ho-hum labor